The bottom line is that the only peaceful way out of the Israel-Palestine issue and the larger issues of Islamic based terrorism against Western states is either two states for Israelis and Palestinians or one federal democratic (not theocratic) state encompassing both people. The latter will not happen. So if you want to eventually stop the violence you need an official government and rights for the Palestinian people alongside Israel.
Unfortunately, what Israel is doing right now is actively undermining that effort through expansionist policies. The time to negotiate statehood and boundaries cannot possibly happen when that state is under direct physical erosion from the party you're trying to negotiate with. It has little to do with terrorists. Terrorists are a side-effect of the breakdown in the negotiating system. As highlighted in that article I posted, the main intifadas occur when the negotiating apparatus fails. The apparatus has failed because, more often than not, Israel poisons the well.
The key factor in this situation is that either you believe that Israel's occupation of the west bank is illegal or you believe that it is not. The world is almost unanimous in its determination that the occupationof palestinian territory is not legal. If that's the case then the party in the wrong needs to be the first mover on conciliation.
Conversely, if hypothetically the Palestinians are able to convincingly demonstrate that they have removed their capacity to conduct terrorist attacks, and do this first, why would Israel then concede the territory? They remove the threat and eat the cake.
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